Scheme has kickstarted housing market and helped buyers, say some – but critics fear it is causing a property price bubble
A "moronic" policy, or "a welcome boost to buyer confidence"– in the year since the chancellor first announced the Help to Buy scheme for homebuyers, his plan has attracted a full range of descriptions, and although he announced on Sunday it would be extended another four years to 2020 at a cost of £6bn, the jury is still out.
Help to buy is proving a key catalyst for construction, according to analysts at investment bank Morgan Stanley, who credit the scheme for almost all of the 16% increase in housing starts over the past year. However, other commentators suggest the recovery would have happened without a £15.5bn injection of support from the taxpayer, and that unless changes are made the scheme still risks causing a house price bubble.
Help to Buy was the surprise of last year's budget, with the chancellor's announcement of a taxpayer-backed guarantee on 95% mortgages catching lenders on the hop. The scheme was designed to kickstart the housing market and help first-time buyers and movers who, following the credit crunch, were finding it hard to get home loans without a large deposit. In the year since, annual house price inflation has reached almost 10% on some measures, and mortgage lending to first-time buyers has reached its highest levels since the crash; however transaction levels still remain historically low, and housebuilding is not keeping up with demand.
The first element of the scheme, an interest-free loan on new-build properties was in effect an update of an existing new-build scheme, extended to homemovers as well as first-time buyers, and has proved the less controversial part.
Government figures indicate that the initiative is doing what it says on the tin, albeit on a small scale. Nearly 15,000 properties have been sold to first-time buyers, who accounted for almost 90% of home purchases made via Help to Buy I between April and January.
The Home Builders Federation said this part of the scheme was delivering around 2,500 new home reservations a month and had resulted in more than 25,000 reservations to date, mostly by first-time buyers. Huw van Steenis and Charles Goodhart of Morgan Stanley said 30% of new-build homes had been funded by the first part and have predicted that will more than meet the objective of supporting the creation of 74,000 new homes by 2016 if things continue at the current rate. To improve the scheme, Van Steenis said it should be made "quite specific to people who really need it – keyworkers such as teachers and nurses ... as in the 1930s, we see house building, still 25% below long-term averages, as crucial for a broader economic recovery."
Morgan Stanley said building had been predominantly outside London, a point picked up on by estate agency firm Savills. It calculated that in the north-east, the equity loan scheme supported 2.8% of all transactions between April and December, compared with 1.8% in the north-west and 2.1% in the West Midlands. Drilling down further, it found that in Corby, Northamptonshire, almost one in 10 sales were through Help to Buy, while in Peterborough and Telford and Wrekin the figure was almost 8%. Susan Emmett, director residential research at Savills, said: "Help to Buy has done little to help buyers in high value markets and as such is not fuelling property markets that are already hot. Our analysis shows the opposite – it is helping parts of the country where house prices remain either close to or below the national average."
Howard Archer, chief UK economist at IHS Global Insight, said he thought the chancellor "can say that the first phase of Help to Buy has had some success", but that he was "pretty sure that given the marked upturn in the housing market, developers would have seen an increase in demand anyway".
Like many other commentators he is concerned about the second part of the scheme, which went live in October and offers banks and building societies a taxpayer-backed loan on mortgages of up to 95% loan to value (LTV). That part can be used on any property worth up to £600,000, so breaks the connection between demand for property and a supply of new homes. As such, some fear it is pushing up prices. "I still think there is an increasingly strong case for at least diluting the Help to Buy mortgage guarantee scheme given the momentum there currently is in the housing market," said Archer. "While I think it is premature to talk about a housing bubble outside of London, there is substantial upward momentum in the housing market that is spreading and needs to be closely watched by policymakers. Once the housing market gains appreciable momentum, it can be hard to rein in."
The Council of Mortgage Lenders said it was difficult to gauge the impact of Help to Buy, because it had coincided with the recovery in the wider economy. However its chief economist, Bob Pannell, said it had helped support activity and prompted better availability and pricing of higher LTV mortgages. "It's important to note that the Financial Conduct Authority's new mortgage rules on affordability and income verification will tend to act as a curb on any over-enthusiastic appetite to lend or borrow at the margins of affordability that some critics of the schemes have seen as inevitable consequences of Help to Buy," he added.
Matthew Pointon, housing economist at Capital Economics, was less convinced of its effects. "Interest rates on Help to Buy loans are expensive, at around 5%, which will make renting cheaper than buying for most. Furthermore, banks will be very cautious about who they lend to, and we suspect many who apply for a Help to Buy mortgage will be turned down."
He adds: "All it will do is push up prices." Reported by guardian.co.uk 8 hours ago.
A "moronic" policy, or "a welcome boost to buyer confidence"– in the year since the chancellor first announced the Help to Buy scheme for homebuyers, his plan has attracted a full range of descriptions, and although he announced on Sunday it would be extended another four years to 2020 at a cost of £6bn, the jury is still out.
Help to buy is proving a key catalyst for construction, according to analysts at investment bank Morgan Stanley, who credit the scheme for almost all of the 16% increase in housing starts over the past year. However, other commentators suggest the recovery would have happened without a £15.5bn injection of support from the taxpayer, and that unless changes are made the scheme still risks causing a house price bubble.
Help to Buy was the surprise of last year's budget, with the chancellor's announcement of a taxpayer-backed guarantee on 95% mortgages catching lenders on the hop. The scheme was designed to kickstart the housing market and help first-time buyers and movers who, following the credit crunch, were finding it hard to get home loans without a large deposit. In the year since, annual house price inflation has reached almost 10% on some measures, and mortgage lending to first-time buyers has reached its highest levels since the crash; however transaction levels still remain historically low, and housebuilding is not keeping up with demand.
The first element of the scheme, an interest-free loan on new-build properties was in effect an update of an existing new-build scheme, extended to homemovers as well as first-time buyers, and has proved the less controversial part.
Government figures indicate that the initiative is doing what it says on the tin, albeit on a small scale. Nearly 15,000 properties have been sold to first-time buyers, who accounted for almost 90% of home purchases made via Help to Buy I between April and January.
The Home Builders Federation said this part of the scheme was delivering around 2,500 new home reservations a month and had resulted in more than 25,000 reservations to date, mostly by first-time buyers. Huw van Steenis and Charles Goodhart of Morgan Stanley said 30% of new-build homes had been funded by the first part and have predicted that will more than meet the objective of supporting the creation of 74,000 new homes by 2016 if things continue at the current rate. To improve the scheme, Van Steenis said it should be made "quite specific to people who really need it – keyworkers such as teachers and nurses ... as in the 1930s, we see house building, still 25% below long-term averages, as crucial for a broader economic recovery."
Morgan Stanley said building had been predominantly outside London, a point picked up on by estate agency firm Savills. It calculated that in the north-east, the equity loan scheme supported 2.8% of all transactions between April and December, compared with 1.8% in the north-west and 2.1% in the West Midlands. Drilling down further, it found that in Corby, Northamptonshire, almost one in 10 sales were through Help to Buy, while in Peterborough and Telford and Wrekin the figure was almost 8%. Susan Emmett, director residential research at Savills, said: "Help to Buy has done little to help buyers in high value markets and as such is not fuelling property markets that are already hot. Our analysis shows the opposite – it is helping parts of the country where house prices remain either close to or below the national average."
Howard Archer, chief UK economist at IHS Global Insight, said he thought the chancellor "can say that the first phase of Help to Buy has had some success", but that he was "pretty sure that given the marked upturn in the housing market, developers would have seen an increase in demand anyway".
Like many other commentators he is concerned about the second part of the scheme, which went live in October and offers banks and building societies a taxpayer-backed loan on mortgages of up to 95% loan to value (LTV). That part can be used on any property worth up to £600,000, so breaks the connection between demand for property and a supply of new homes. As such, some fear it is pushing up prices. "I still think there is an increasingly strong case for at least diluting the Help to Buy mortgage guarantee scheme given the momentum there currently is in the housing market," said Archer. "While I think it is premature to talk about a housing bubble outside of London, there is substantial upward momentum in the housing market that is spreading and needs to be closely watched by policymakers. Once the housing market gains appreciable momentum, it can be hard to rein in."
The Council of Mortgage Lenders said it was difficult to gauge the impact of Help to Buy, because it had coincided with the recovery in the wider economy. However its chief economist, Bob Pannell, said it had helped support activity and prompted better availability and pricing of higher LTV mortgages. "It's important to note that the Financial Conduct Authority's new mortgage rules on affordability and income verification will tend to act as a curb on any over-enthusiastic appetite to lend or borrow at the margins of affordability that some critics of the schemes have seen as inevitable consequences of Help to Buy," he added.
Matthew Pointon, housing economist at Capital Economics, was less convinced of its effects. "Interest rates on Help to Buy loans are expensive, at around 5%, which will make renting cheaper than buying for most. Furthermore, banks will be very cautious about who they lend to, and we suspect many who apply for a Help to Buy mortgage will be turned down."
He adds: "All it will do is push up prices." Reported by guardian.co.uk 8 hours ago.